IMF Changes Forecast

The International Monetary Fund (IMF) has scaled back its expected global growth forecasts for 2015 again and has warned that downside risks to the global economy appear “more pronounced.”

Global growth for 2015 is projected at 3.1 percent, down 0.2 percentage points from its July forecast for 3.3 percent growth,according to the IMF’s latest World Economic Outlook (WEO) report. The report noted weaker growth prospects for emerging economies, including China, and a decline in commodity prices as a reason for the revision.

In its report published Tuesday, the organization said that global growth “remained uneven” with developed economies and emerging markets facing diverging outlooks. As such, “downside risks to the world economy appear more pronounced than they did just a few months ago,” it added.

“Relative to last year, the recovery in advanced economies is expected to pick up slightly, while activity in emerging market and developing economies is projected to slow for the fifth year in a row, primarily reflecting weaker prospects for some large emerging market economies and oil-exporting countries,” it said.

“In an environment of declining commodity prices, reduced capital flows to emerging markets and pressure on their currencies, and increasing financial market volatility, downside risks to the outlook have risen, particularly for emerging market and developing economies.”

Such global factors and country-specific developments pointed to a somewhat weaker recovery in 2015 and 2016 than previously envisaged, the IMF said. The weaker forecast illustrates the steady decline in optimism at the Washington-based organization; in April the IMF had predicted global growth of 3.5 percent this year.

As well as low productivity growth and high debt levels in emerging markets, specifically, the IMF believed that the downturn in commodity prices and “growth realignment in China” were key problems for developing economies’ growth outlooks.

“In countries outside of the advanced economies, the sources of slower growth are diverse, ranging from commodity price declines (which are also affecting a few advanced economies adversely), to overhangs from past rapid credit growth, to political turmoil.”

The report comes amid a sharp oil price decline since June 2014 when a barrel of oil fetched $114. Today, that same barrel costs below $50. Moreover, metal prices have also fallen on concerns over global demand, particularly following the slowdown in China.

Emerging markets should concern us all as they “account for a growing share of world output and will still account for the lion’s share of world growth,” the IMF noted. It wasn’t all bad news for emerging markets, however, as the IMF did forecast a pickup in growth in 2016.

“Growth in emerging market and developing economies is projected to rebound in 2016. This reflects mostly a less deep recession or a partial normalization of conditions in countries in economic distress in 2015 (including Brazil, Russia, and some countries in Latin America and in the Middle East), spillovers from the stronger pickup in activity in advanced economies, and the easing of sanctions on the Islamic Republic of Iran. China’s growth is projected to slow further, albeit gradually.”